Effective Jan. 1, 2022, Canada now levies a 1% tax on vacant or underused residential real estate owned by non-Canadians. If you own residential property in Canada, you may be impacted by this tax and the related filing requirements.
This article explores the underused housing tax (UHT) filings that may need to be considered by non-Canadians who legally own Canadian residential real estate on Dec. 31:
- through a private corporation;
- through a partnership; or
- in a trust or estate.
In this context, non-Canadian individual refers to individuals who are not citizens or permanent residents of Canada (as defined under the Immigration and Refugee Protection Act). An individual can be resident of Canada for income tax purposes, and still be subject to UHT if they are not a citizen or permanent resident of Canada. The UHT covers a significant range of taxpayers, resulting in a filing requirement for many entities such as private corporations, partnerships, trusts, and estates.
What types of property are taxable?
Residential properties that are subject to the UHT include:
- A detached house or similar building that contains not more than three dwelling units, along with any real property improvements (i.e., fences etc. and the related land):
- Dwelling unit includes a residential unit that contains private kitchen facilities, a private bath, and a private living area.
- A residential unit is a single self-contained set of rooms in a building or part of a building that is distinguished from any other such set of rooms in the building or part and that is characteristic of, and suitable as, a residence.
- A semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, real property improvements i.e., fences etc. and the related land.
- Laneway and coach houses.
- Cottages, cabins, and chalets.
For example, a residential apartment building with four residential units that do not each have separate title is not considered residential property under the UHT, but a three-unit apartment building (a triplex) would be residential property under the UHT.
If you own a residential property in Canada and are not a Canadian citizen or permanent resident, you may be an owner who holds property for investment purposes. Where the property is not used by you, or not rented, or it is rented short-term, such as an Airbnb, it is likely that the UHT will apply.
If you are not a Canadian citizen or a permanent resident of Canada for immigration purposes, but you own and occupy a home in Canada because you or your spouse are pursuing authorized work under a Canadian work permit, you can apply for an occupancy exemption. See the Property used as a place of residence section below. You may also qualify for a primary place of residence exemption.
If you are not a Canadian citizen or a permanent resident and you own a vacation property in Canada, there is a special exemption where that property is in a designated area. See the Location of the property section below. In addition, the occupancy exemption may be available.
Who has a filing and payment obligation?
There are two categories of property owners under the UHT: excluded and affected owners.
An excluded owner does not have a filing or payment obligation under the UHT.
The UHT defines an excluded owner of a residential property on Dec. 31 as:
- An individual who is a Canadian citizen or permanent resident who owns the property in their name and not as a trustee or as a partner in a partnership.
- Individual who is a Canadian citizen or permanent resident who owns the property in their capacity as the personal representative of a deceased person.
- An owner of a residential property as a trustee of any of the following trusts—a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT).
- A Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes.
- A registered charity for Canadian income tax purposes.
- Cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university for Canadian GST/HST purposes.
- Indigenous governing body or a corporation wholly owned by an Indigenous governing body.
An affected owner is required to file and pay the tax under the UHT unless they qualify for an exemption. If an affected owner qualifies for an exemption, they are still required to file a UHT return and claim the exemption, but there is not an obligation to pay the tax.
Anyone who does not meet the definition of an excluded owner (see above) is an affected owner for the purposes of the UHT.
This article does not address the filings required by Canadian owners (individuals who are Canadian citizens or permanent residents, certain Canadian corporations, partnerships, and trusts) who own Canadian residential property. Read our article, Underused housing tax program: Considerations for Canadian corporations, partnerships, and trusts, to learn more about the impact of UHT on Canadian owners.
Owners of residential property who are:
- corporations that are not incorporated or continued into Canada,
- trustees of a trust that has beneficiaries that are not citizens or permanent residents of Canada, and
- certain partners of partnerships
will also be required to determine if they need to file a UHT return, and either pay UHT or claim an exemption.
The UHT applies to affected owners of Canadian residential real estate on title on Dec. 31. The 2022 calendar year is the first year that this tax applies. To determine your liability under the UHT a review of the exemptions must be undertaken.